Tuesday, 1 December 2015

The paradox of sweatshops
is this: they are pretty grim places, so lots of people want to see them
discontinued. Yet discontinuing them frequently brings about an even grimmer
situation for the people working in them, meaning that the people claiming the
greatest consternation for the workers are actually the people doing them most
harm. Actually, let’s not even refer to them with the misleading terms ‘sweatshops’
– let’s call them what they are: factories of low pay (FLP).

But isn't that where the State should get involved?

In most cases, probably not! They are highly likely to mess it up. You may have some idealistic fantasy about State powers intervening to
rescue developing nations from the oppression of heartless corporate hounds,
but you know as well as we do that no such thing can ever materialise - and
that the only way for citizens of developing countries to climb the ladder of
prosperity is for them to be able to trade
more freely and openly in a global market.

Nevertheless, it is the case that big businesses go
into developing countries because they know workers there will work for much
lower wages than in the developed world, which is kind of immoral, right?

Ah, but lower wages than
whom?

Lower than workers in the UK.

But why should you think
the two nations' wages would be comparable? They both have different cultures
and different prices. Comparing the wages of two very different countries with
vastly different levels of wealth is pointless. £2 in Bangladesh goes a lot further than £2 in the UK.

It still pains us to see them working in less
favourable conditions though.

Sure, but while it often
elicits indication and disgust, the resultant outcome of this is an outcome
that benefits both parties. The workers in developing countries get the chance
to enter the global market and earn enough to gradually improve their living
standards, and the businesses that set up there are able to make a profit and
often expand into other areas of the market.

But while it's evidently the case that the businesses
are making a profit out of some of the world's lowest paid labour, the question
of whether they are morally wrong or simply the first steps of progression for
a developing country looms large.

A few points might make
this easier. Firstly, as long as the labour is offered voluntarily then FLP workers
are working in FLPs because they prefer that work to the alternatives. I recall
a US senator in the nineties banning imports that came from FLPs, which
resulted in about 50,000 workers being laid off - many of whom either died or
went into prostitution. Secondly, the wages that people earn are determined by
the marginal revenue productivity of a worker, which varies according to all
sorts of factors - most notably, supply, demand and competition. If a Bangladeshi
FLP worker creates £3 per hour worth of revenue for a firm, then accounting for
the intervening point between profits and productivity, he (or she) will be
paid somewhere between £0 and £3 per hour. Paying him more than £3 would be
costly to the firm so they would lay him off. Paying him too little would
affect productivity, which affects profits.

So is it actually immoral to pay people their marginal
revenue productivity when A) doing so offers them hugely greater benefits than
the alternatives, and B) if even more of these factories existed there would be
more people getting out of their plight?

It is difficult to see how
this is immoral - particularly once you realise that paying them more than the
value of their labour only ends up hurting everybody else trying to get a foot
on the first rung on the labour market. Price signals dictate value. Is that
immoral? I don't see how it is, because price signals carry all the vital
information about value, which is the very thing that underpins all the
economic growth humans experience. It's true that politicians and campaigners could
feel indignant and demand a rise in pay, but if such an action guarantees harm
for millions of others looking to take advantage of the chance to sell their
labour and feed their family, then intervention can just as easily be argued as
being irresponsibly immoral. Politicians who lament the fact that Bangladesh
has 500 factories fail to realise that an even more prosperous Bangladesh would
be one that had 1000 factories. Rewind back time 150 years and we'd be saying
the same about the UK.

It is in the employers'
interest to help improve the working standards for their employees - things
like improved health and safety, shorter days, more comfort, better facilities
and regular breaks can only help with productivity and morale. The upshot is,
things are tough for Bangladeshi workers, but they would be a lot tougher if
protest groups got their way and we stopped buying the goods they produce. The
result would be to artificially advantage better off workers by eliminating
much of the competition. Saying this isn't denying that it's unfortunate that
Bangladeshi workers have a much worse time of it than UK workers - but if
solutions proffered are actually a misunderstanding of what helps people and
what harms them, it is difficult to argue that anti-FLP campaigners are the
moral ones and the rests of us are immoral.

I won't deny that many
instances of protesting, boycotting and activism have proven to be valuable
vehicles for improvement. But many have not been, as they end up interfering in
a market they scarcely understand. As has happened in the past 150 years in the
UK and USA, and as had happened more recently in about a fifth of the time in
places like Japan, Taiwan, South Korea and Hong Kong, developing countries get
a foot on the ladder of prosperity and begin to become more open to the vital
market forces of globalisation that will bring them economic growth and increased
prosperity.

But why are so many people still are poor?

Be careful! To understand
why the answer lies elsewhere you first have to understand why that's the wrong
question. The right question is why are so many people so prosperous? Prosperity
is not the default state of human beings - poverty and hardship is. For most of
our history we have been struggling through poverty and hardship. Then a couple
of centuries ago we saw a progression-explosion brought about primarily by
science and capitalism. Naturally there were always going to be countries that
experienced these changes in fortune first.

So the poverty and hardship we lament now was once our
natural state too?

Exactly! Once upon a time,
the kind of hardships seen in India and Bangladesh now were seen in the UK
then. We in the UK once used to be an underdeveloped country, having citizens
who work painstakingly long hours in very poor working conditions for
relatively little money. But as we saw the increased growth of capital, the
advancements in technology, and the increased opportunity to trade and
innovate, we gradually climbed out of poverty and hardship into greater wealth
and prosperity.

What we're saying, then, is that developing nations
haven't had their progression-explosion yet?

Sort of, and there's no
reason to think every country will experience the same kind of
progression-explosion. But what is happening is that people in FLPs now are
experiencing something similar to what we did 200 years ago - they have improved
their own living conditions by being able to earn money and avoid starving to
death. Their standard of living is woefully short of ours - but it is only our
increased standard of living that has enabled them to begin their climb to
better prosperity. And as I pointed out in this blog, we need 600 million new jobs in the next decade to fully employ the world’s eligible workforce, and entrepreneurs and big businesses are the top creators of new jobs, providing 70% of all new jobs in the world, and up to 90% in some emerging economies. It is the world's biggest businesses that do most to drive economic growth in poorer countries.

How so?

Because the global economy
is now a vast interconnectivity that has enabled the poorest countries to enter
the market in a way that was nigh-on impossible decades ago. Just as the UK was
able to bring about the eradication of its own dire labour conditions by
becoming wealthier, the same is happening with today's poorer countries. The
best way to ensure they continue to increase their prosperity is to keep
opening up the market in which they can sell their goods and services.

EDIT TO ADD: One final thought. Habitually we tend
to consider much of our moral thinking in binary terms - kindness and
generosity are good things, murder and rape are bad things, and so on (yes
there are exceptional circumstances, but generally this is true). Often,
though, in economics, applying such binary considerations is misjudged, because
economics deals primarily with positive statements, not normative ones. Usually
when morality comes into economics it is not to do with good and bad, it is to
do with better or worse. In other words, normative statements in economics are
usually a matter of scale related to whether decisions make people better or
worse off in terms of money to live on, well-being, and so on.

Sweatshops as a
perfect example to illustrate this. By any standard we are used to in places
like the UK and USA, sweatshops are pretty dire places. But given that
countries across the world vary greatly in their developmental stages, it is
misjudged to simply refer to them as 'bad' in absolute terms, particularly if
by bad you mean wanting them discontinued. Because of the plight of countries
like Bangladesh, Vietnam, Indonesia, and so forth, sweatshops must be judged
not compared with other alternatives in the UK and USA, but instead in
comparison to other alternatives in the countries in which sweatshops exist.
You can guarantee that sweatshop workers are choosing the best of all the
alternatives available to them - alternatives like agriculture, road-building,
pulling rickshaws, construction work, hustling in the street, and even worse,
prostitution. Those are just some of the alternatives that don't involve death
through starvation - and they are all lower paid jobs and involve harder labour
than sweatshops. In fact, comparably speaking, much of the work in sweatshops
is more skilled labour than any of those jobs (as any dress-making seamstress
will tell you).

So the moral
situation that people face when talking about sweatshops is roughly this. Given
that sweatshops are by far the least bad option for many people, successful
campaigns to close them and boycotts against the goods they produce will make
those people worse off. Yet speaking out in support of them will cause you
grief, and bring accusations that you don't care, even though sweatshops make
people better off, and in many cases rescue them from prostitution or death. In
summary, then, quite often you either support sweatshops and do the right thing
for the people, or you condemn them, get praise, but do the wrong thing for the
people. And let's not forget, supporting people's opportunities to work in
sweatshops does not mean we can't be a voice for them regarding better working
conditions, improved employment protocols, better health and safety, and so
forth.

About Me

This is the Blog of James Knight - a keen philosophical commentator on many subjects.
My primary areas of interest are: philosophy, economics, politics, mathematics, physics, biology, chemistry, theology, psychology, history, the arts and social commentary.
I also contribute articles to the Adam Smith Institute and the Institute of Economics Affairs.
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